Crispy Plays in the Fast Food Space

 | Aug 18, 2012 | 2:30 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

afce

,

nath

Note: An earlier version of this story included an analysis of J. Alexander's (JAX) that did not include recent buyout news. The analysis has since been removed.

In Friday's session, one big price mover early on was AFC Enterprises (AFCE), Atlanta-based operator of Popeyes Louisiana Kitchen and Popeyes Chicken & Biscuits restaurants.

The stock sported some erratic trade Thursday after the company reported its second quarter. AFC beat on the top and bottom lines, and it raised fiscal 2012 earnings guidance. However, it was downgraded to Hold from Buy at Felti & Co., even as the analyst shop raised its price target on the stock to $26 from $21.50.

An intraday chart shows a 7.5% gap-up at the open Thursday, then a gradual selloff throughout the session.

CEO Cheryl Batchelder got some airtime with Jim Cramer on Mad Money after the close Thursday, making her case for growth in the Louisiana Kitchen unit, as well as for international growth prospects. Following this, not only was the stock trading higher Friday morning, but volume was above average. I would consider this stock to be buyable, but there are a couple of possible areas where AFC could hit resistance. First there's the $24-to-$25 range, where the stock has stalled twice and, second, there's above $26, where it was briefly trading during Thursday's gap higher.

AFC's move comes at a time when some of the longtime leaders of the chain-restaurant world have been consolidating. An easy-to-spot example is Chipotle Mexican Grill (CMG), which is down 32% from its April peak of $442.40. It's not unusual to see smaller stocks correct at these rates, but you don't see it as often with large, liquid names such as Chipotle.

Does this mean the stock can never rally back? Of course not. In fact, its free fall could ultimately bode well for the stock: It could have the effect of flushing out investors who lack confidence in the company, and set the stage for bargain-hunters to grab shares at a cheaper valuation. The fundamental case here remains strong, with Wall Street eyeing earnings of 32% this year and 21% in 2013.

But one unheralded small-cap restaurant name -- Nathan's Famous (NATH) -- is strong in both the fundamental and technical columns, and has been in rally mode lately. Shares of the hot-dog purveyor, which also runs Arthur Treacher's fish and chips restaurants, is well extended from any semblance of a buy point. The stock is up 8% so far in August, marking its seventh month in a row of gains. Year to date, the stock is up 56%.

Nathan's rallied to an all-time high of $33.39 Friday, but proceeded to retreat from that level. It recently pulled back to get support at its 15-day line -- but, at this juncture, a 50-day retreat may be a more constructive development, and could potentially offer a new entry point. In fact, a new base, with lows below the 50-day, may be technically warranted after the extended run-up. 

Please note that due to factors including low market capitalization and/or insufficient public float, we consider ­­­­NATH to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Another small restaurant stock that's been in rally mode isn in

Columnist Conversations

TrueCar, Inc. (TrueCar) is a data-driven online platform operating a technology infrastructure, powered by dat...
Financial Planning magazine reports that... The Internal Revenue Service is considering regulations to limit t...
MMM is rolling over. Early last week the stock began to fall out of a steep bull channel before retestin...
Higher tariffs are a sign of increased floating inventories that will be available for immediate withdrawal on...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.